International Financial Reporting Standards_guide.pdf

296 Chapter 27 Borrowing Costs (IAS 23)
27.4 ACCOUNTING TREATMENT
Recognition
27.4.1 Borrowing costs that are directly attributable to the acquisition, construction, or production
of a qualifying asset should be capitalized when:
■ it is probable that they will result in future economic benefits to the entity; and
■ the costs can be measured reliably (see effective interest rate method per IAS 39).
27.4.2 Other borrowing costs are recognized as an expense in the period in which they are
incurred.
27.4.3 Capitalization commences when all of the following conditions have been met:
■ expenditures on a qualifying asset are being incurred;
■ borrowing costs are being incurred; and
■ activities necessary to prepare the asset for its intended sale or use are in progress.
27.4.4 Capitalization should be suspended during extended periods in which the active
development of the asset is interrupted.
27.4.5 Capitalization should not cease:
■ when all of the components required before any part of the asset can be sold or used
are not yet completed;
■ for brief interruptions in activities;
■ during periods when substantial technical and administrative work is being carried
out; or
■ for delays that are inherent in the asset acquisition process (for example, wines that
need long periods of maturity).
27.4.6 Capitalization should cease when:
■ the asset is materially ready for its intended use or sale; or
■ construction is completed in part and the completed part can be used independently.
Measurement
27.4.7 The amount to be capitalized is the borrowing costs that could have been avoided
if the expenditure on the qualifying asset had not been made:
■ If funds are specifically borrowed to obtain a particular asset, the amount of borrow
ing costs qualifying for capitalization is the actual costs incurred during the period, less
income earned on temporary investment of those borrowings.
■ If funds are borrowed generally and used to obtain an asset, the amount of borrowing
costs to be capitalized should be determined by applying the weighted average of the
borrowing costs to the expenditure on that asset. The amount capitalized during a
period should not exceed the amount of borrowing costs incurred during that period.
27.4.8 When the carrying value of an asset, inclusive of capitalized interest, exceeds the net
realizable value, the asset should be written down to the net realizable value.